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Five9 Accelerating Its Push Into the Enterprise Market

CCaaS Provider Targets ROI-Focused Innovations, Balanced Expansion

The News:

Five9 underscored its strong financial results posted during its Q1 2023 earnings period during an analyst briefing on May 25. The CCaaS vendor reported $218.4 million in revenue for the first quarter, a 20% increase above the $182.8 million reported during the first quarter of 2022. The company also reported adjusted EBITDA of $35.1 million, or 16.1% of revenue, for Q1 2023, compared to $24.5 million, or 13.4% of revenue, for the first quarter of 2022. Notably, the company’s operating cash flow for the quarter reached $33.4 million, up from $28.7 million for the same period a year ago.

Perhaps most interesting, the company referenced its continuing push into the enterprise market, noting that as of Q4 2022, enterprise customers that generated $1 million or more in annual recurring revenue (ARR) accounted for 52% of the total revenue generated, up from just 6% in Q2 2014.

You can view the press release covering Five9’s Q1 2023 results here.

Five9 Accelerating Its Push Into the Enterprise Market

Analyst Take:

Five9’s executive team reviewed its recent Q1 2023 performance with industry analysts on May 25, where it underscored the company’s strong financial metrics, which included record revenue of $218.4 million for the quarter, representing a 20% increase over the same period a year before. The CCaaS provider also posted healthy EBITDA and free cash flow figures, underscoring the fiscal health and strength of the organization, even amid tough economic headwinds.

On the call, Five9 Chairman and CEO Mike Burkland laid out the company’s growth drivers for the future, which include a continuing expansion to focus on the enterprise market, platform enhancements through an increasing use of AI and automation, and the use of partnerships to drive conversion of on-premises contact centers to its cloud-based offerings. He also spoke about recent client wins in the healthcare technology and financial services sectors, each of which contribute annual recurring revenue (ARR) of more than eight figures, and chose Five9 based on its ability to provide a comprehensive CX platform and the strength of its professional services organization.

Five9 executives discussed several key strategic elements which are critical to succeeding in the highly competitive CCaaS market, particularly as economic factors create a more challenging sales environment.

Five9’s Continued Expansion Into the Enterprise Market

While Five9 is not abandoning its smaller, sub-$1 million ARR customer base, one of the key factors behind the company’s recent success is its expansion into the lucrative, yet competitive, enterprise market. Whether a provider uses a per-agent or consumption-based pricing model, increasing the level of platform utilization is achieved more easily by signing larger deals with enterprises, as compared with culling together many smaller customers. This approach may be useful given the challenging economic environment, as budgets tighten and sales cycles lengthen, particularly among commercial and SMB organizations.

Further, Five9 noted its strong customer retention rate, which on an annual, dollar-based rate, reached 114% in Q1 2023. Leadership projects this rate to reach into the high 120% range, based on the strong retention of the company’s enterprise market customers, which feature an annual dollar retention rate of above 114%, according to the company.

Driving Platform Innovations

Five9’s Burkland also spoke about the need to continually provide platform innovations, which are largely based on the integration of AI and automation to help customers drive efficiency and ROI. Burkland said the company will remain AI technology-agnostic, indicating Five9 will remain willing and able to incorporate a variety of generative and LLM-based technology. He noted that the company has already embedded ChatGPT3 within its platform, and is focused on incorporating technology that will work immediately to deliver value, such as utilizing these technologies’ content summarization strengths.

The company also reiterated that Five9 has no interest in developing its own core LLM or generative AI technology, instead focusing on the integration of the latest technologies throughout the platform to deliver ROI to its customers quickly. This approach is prudent, given the rapid speed at which underlying technology can change and improve, and ensures that the company’s focus remains on its core CCaaS business.

When I asked about the types of use cases Five9’s virtual agents are handling, Burkland characterized the interactions as being “fairly basic,” and said they are still in the very early stages of incorporating LLM and generative AI technology into agent workflows and automations. This is a prudent approach that recognizes the value of focusing deploying technology that can quickly deliver ROI, rather than simply rolling out new technology for the sake of the sell sheet.

Focus on Vertical, Geographic, and Channel Expansion

Five9 is also taking a multi-pronged approach to expansion. The company says it sells to 17 different verticals, though the top three (healthcare, financial services, and consumer and retail) accounted for about 50% of the company’s total recurring revenue. Burkland noted two recent client wins – a $4.7 million ARR deal with a healthcare technology and services provider, as well as a $2.3 million ARR deal with a full-service regional bank – that both selected Five9 based on its comprehensive platform capabilities, as well as the company’s professional services organization’s ability to tailor applications to enhance efficiency while reducing costs and driving revenue. Leadership characterized the company’s vertical focus as being broad, though they were not able to provide more specific revenue breakouts across all verticals during this update.

Meanwhile, international revenue grew 48% on a year-over-year basis, driven by the company’s focus on developing international partners. Leadership indicated that the company continues to increase the number of partners which are certified for both go-to-market and implementation of the company’s platform. According to the company, Five9’s partner community implements 70% of its bookings.

Burkland highlighted Five9’s partnership with BT (formerly British Telecom), which will enable BT to resell Five9’s offering to its base of on-premises contact center customers, and characterized the deal as a “needle-mover internationally” for the company.

Author Information

Keith has over 25 years of experience in research, marketing, and consulting-based fields.

He has authored in-depth reports and market forecast studies covering artificial intelligence, biometrics, data analytics, robotics, high performance computing, and quantum computing, with a specific focus on the use of these technologies within large enterprise organizations and SMBs. He has also established strong working relationships with the international technology vendor community and is a frequent speaker at industry conferences and events.

In his career as a financial and technology journalist he has written for national and trade publications, including BusinessWeek, CNBC.com, Investment Dealers’ Digest, The Red Herring, The Communications of the ACM, and Mobile Computing & Communications, among others.

He is a member of the Association of Independent Information Professionals (AIIP).

Keith holds dual Bachelor of Arts degrees in Magazine Journalism and Sociology from Syracuse University.

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